Merck's New Alchemist

Can Peter Kim shake up the giant's R&D operations?

As a hotshot scientist at the Cambridge (Mass.)-based Whitehead Institute during the 1990s, Peter S. Kim never let minor obstacles stand in his way. Whitehead, the renowned biomedical research center affiliated with the Massachusetts Institute of Technology, didn't have quick access to powerful X-ray technology for Kim's protein structure research. So he persuaded higher-ups to foot the multimillion-dollar bill for new equipment that would allow immediate use of the super-powerful X-ray source at the government's Argonne National Laboratory. "His influence carried weight up to the highest levels," says Phillip A. Sharp, a Nobel laureate and biologist who is a professor at MIT, where Kim also taught.

The 44-year-old Kim will need that vision and drive in his new role at Merck & Co. (MRK ) On Dec. 2, Merck announced that Kim, who became a scientific superstar at Whitehead doing research into viruses like HIV, will take over as chief of the drugmaker's $2.7 billion research and development operation at the start of 2003.

Kim, who was recruited to be executive vice-president of R&D at Merck in 2001, faces a daunting task. He must use his proven mastery of cutting-edge biology to help Merck harness the potential of the genomics revolution. The new science has raised costs for every drugmaker in the near term but has yet to yield a wave of new products. The result is that Merck, like virtually every drugmaker, is struggling with a weak pipeline. "We need extraordinary leaders with biotechnology and genomics expertise," says Denise DeMan-Williams, founder of the pharmaceutical recruiting firm Bench International Search Inc.

At the core of Kim's strategy is a drive to cut the notoriously high failure rate of drug development. Just months after joining Merck, he persuaded Chairman and CEO Raymond V. Gilmartin to make a big bet on the emerging science of molecular profiling, which can give an early read on a drug's likely safety and effectiveness. Kim set his sights on the Kirkland (Wash.) biotech company Rosetta Inpharmatics Inc., striking a $540 million deal to buy it in just a few weeks. "We needed to do molecular profiling, and I knew it would take a long time to build it internally," Kim says from his office at Merck's West Point (Pa.) labs.

If he's right, the Rosetta deal could pay big dividends. Rosetta studies patterns of how tens of thousands of genes are turned on and off in various tissues. Those tissues may be taken from people or animals with certain diseases or that are taking drugs with known side effects, for example. Merck then tests drug candidates against those patterns. "If this cuts our failure rate, that is big," Kim says.

Kim's bold moves at Merck come as no surprise to those who have followed his career. He made headlines in the 1990s for helping discover the mechanism that HIV and other viruses use to gain entry into healthy cells. "That was absolutely beautiful work," says Dr. Dani P. Bolognesi, chief executive officer of biotech player Trimeris Inc.

While Wall Streeters respect Kim's research credentials, they warn he has a tough transition to make. Analysts are anxiously awaiting Merck's Dec. 10 meeting, where Kim will give an update on Merck's pipeline. For now, though, most believe little quick improvement is in sight. With the $7.5 billion cholesterol-lowering drug Zocor likely to face generic competition in 2006, SG Cowen Securities Corp. analyst Stephen M. Scala figures earnings in Merck's core drug business will grow at a compound annual growth rate of just 2% between 2001 and 2006. The industry should grow 8% to 10% for the period.

That's why some investors want to see Kim go hunting for drugs to license. "I would hope an outside guy [like Kim] will be able to shake things up," says Dr. John Borzilleri, portfolio manager at State Street Research & Management Co., a Merck shareholder. Revitalizing Merck's R&D operation may make decoding nature's most cunning viruses seem easy by comparison.

By Amy Barrett and John Carey in West Point, Pa.

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